F50-532 thinking - BIG-IP v10.x LTM Advanced courses V10.x Updated: 2023

It has been about a month since the last earnings report for F5 Networks (FFIV). Shares have added about 5.8% in that time frame, outperforming the S&P 500.

Will the exact positive trend continue leading up to its next earnings release, or is F5 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most exact earnings report in order to get a better handle on the important catalysts.

F5 Networks' Q2 Earnings and Sales Top Estimates

F5 reported second-quarter fiscal 2023 results, wherein the top and the bottom lines surpassed the Zacks Consensus Estimate.

This Seattle-based company’s non-GAAP earnings of $2.53 per share beat the Zacks Consensus Estimate of $2.42. The bottom line increased 18.8% from the year-ago quarter’s $2.13 per share and was way higher than management’s guided range of $2.36-$2.48 per share.

During the reported quarter, F5 Networks witnessed a 11% increase in its revenues amid a global chip shortage scenario in the semiconductor industry. The company’s non-GAAP revenues were $703.2 million, which beat the Zacks Consensus Estimate of $700.7 million. The top line was above the mid-point of the guided range of $690-$710 million.

Top Line in Detail

Product revenues (48.4% of total revenues), which comprise Software and Systems sub-divisions, increased 14% year over year to $340.6 million. System sales jumped 43% year over year to $209 million, accounting for approximately 61.3% of the total Product revenues. However, Software revenues slumped 13% to $132 million, making up the remaining 38.7% of the total Product revenues.

Global Service revenues (51.6% of total revenues) grew 8% to $362.6 million.

F5 Networks registered sales growth across the Americas, EMEA and APAC regions, witnessing a year-over-year increase of 7%, 22% and 9%, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 54%, 27% and 18%, respectively.

Story continues

Customer-wise, Enterprises, Service providers and Government represented 67%, 13% and 20% of product bookings, respectively.

Margins

GAAP and non-GAAP gross margins contracted 220 basis points (bps) and 250 bps to 77.9% and 80.4%, respectively.

GAAP and non-GAAP operating expenses went up 1.9% and 4.6%, respectively, to $441.5 million and $374.1 million. F5 Networks’ GAAP and non-GAAP operating margins expanded 330 bps and 70 bps to 15.1% and 27.2%, respectively.

Balance Sheet & Cash Flow

F5 Networks exited the March-ended quarter with cash and short-term investments of $755.3 million compared with the previous quarter’s $660 million.

During the fiscal second quarter, the company generated $141 million of operating cash flow compared with the $158 million reported in the previous quarter. The operating cash flow remained under pressure due to strong multi-year subscription sales, which impacted the cash collection process.

Guidance

F5 Networks projects non-GAAP revenues in the $690-$710 million (mid-point of $700 million) and non-GAAP earnings per share in the $2.78-$2.90 band (mid-point of $2.84) for third-quarter fiscal 2023. Non-GAAP gross margin is forecast to be around 82%.

For fiscal 2023, F5 Networks expects low-to-mid-single digit revenue growth.
The company anticipates non-GAAP earnings to grow in 7-11% band. Non

GAAP operating margin is forecasted to be roughly 30%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, F5 has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, F5 has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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F5, Inc. (FFIV) : Free Stock Analysis Report

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Zacks Investment Research

(Bloomberg) -- F5 Networks Inc. has reached an agreement to buy the privately owned software startup Volterra for $500 million.

Seattle-based F5 will pay $440 million in cash, plus about $60 million in deferred stock payments and incentives to Volterra’s founders and employees, according to a statement confirming an earlier report by Bloomberg.

“We’re not acquiring Volterra for what it’s going to do for us today, meaning what it’s going to do for revenue in the 2021 financial year, F5 Chief Executive Officer François Locoh-Donou said in an interview. “We are really acquiring Volterra because it transforms our competitive position.”

F5 has been trying to shift its business to sales from software as opposed to hardware. About 35% of its product revenue is software now, compared with 10% three years ago, Locoh-Donou said. The company’s longer-term goal is to reach 75% of revenue for software sales, he said.

Locoh-Donou said F5 decided to acquire Volterra after first trying to build its own version of the technology.

“We want to be the No.1 in app security as a service and we now have all the elements to do that,” he said.

Volterra, based in Santa Clara, California, is backed by Samsung Electronics Co. and Microsoft Corp., as well as by the venture capital firms Khosla Ventures and Mayfield.

Elliott Pressure

It’s the third acquisition in three years for F5, which has come under pressure from activist investor Elliott Management Corp. over previous transactions and its stock price.

F5, a networking company that works behind the scenes to make sure apps like Disney+ and Netflix run smoothly and securely, will be able to deliver its services quicker and cheaper by combining with Volterra.

F5, which helps power applications for banks such as Capital One Financial Corp. and JPMorgan Chase & Co., will gain access to a more modern infrastructure through the purchase.

The company’s shares have recovered after a pandemic-induced slump last year and are up about 30% since Elliott’s decision to buy a stake in it became public in August.

Ankur Singla, Volterra’s founder and CEO, said the companies have more than half of their customers in common, and combined with F5 will be able to better compete with more established rivals such as Cloudflare Inc. and Fastly Inc.

(Updates with statement in second paragraph)

F5 Networks FFIV reported second-quarter fiscal 2023 results, wherein the top and the bottom lines surpassed the Zacks Consensus Estimate.

This Seattle-based company’s non-GAAP earnings of $2.53 per share beat the Zacks Consensus Estimate of $2.42. The bottom line increased 18.8% from the year-ago quarter’s $2.13 per share and was way higher than management’s guided range of $2.36-$2.48 per share.

During the reported quarter, F5 Networks witnessed a 11% increase in its revenues amid a global chip shortage scenario in the semiconductor industry. The company’s non-GAAP revenues were $703.2 million, which beat the Zacks Consensus Estimate of $700.7 million. The top line was above the mid-point of the guided range of $690-$710 million.

Top Line in Detail

Product revenues (48.4% of total revenues), which comprise Software and Systems sub-divisions, increased 14% year over year to $340.6 million. System sales jumped 43% year over year to $209 million, accounting for approximately 61.3% of the total Product revenues. However, Software revenues slumped 13% to $132 million, making up the remaining 38.7% of the total Product revenues. This downside was due to the ongoing global chip shortage.

Global Service revenues (51.6% of total revenues) grew 8% to $362.6 million.

F5 Networks registered sales growth across the Americas, EMEA and APAC regions, witnessing a year-over-year increase of 7%, 22% and 9%, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 54%, 27% and 18%, respectively.

Customer-wise, Enterprises, Service providers and Government represented 67%, 13% and 20% of product bookings, respectively.

Margins

GAAP and non-GAAP gross margins contracted 220 basis points (bps) and 250 bps to 77.9% and 80.4%, respectively.

GAAP and non-GAAP operating expenses went up 1.9% and 4.6%, respectively, to $441.5 million and $374.1 million. F5 Networks’ GAAP and non-GAAP operating margins expanded 330 bps and 70 bps to 15.1% and 27.2%, respectively.

Balance Sheet & Cash Flow

F5 Networks exited the March-ended quarter with cash and short-term investments of $755.3 million compared with the previous quarter’s $660 million.

During the fiscal second quarter, the company generated $141 million of operating cash flow compared with the $158 million reported in the previous quarter. The operating cash flow remained under pressure due to strong multi-year subscription sales, which impacted the cash collection process.

Guidance

F5 Networks projects non-GAAP revenues in the $690-$710 million (mid-point of $700 million) and non-GAAP earnings per share in the $2.78-$2.90 band (mid-point of $2.84) for third-quarter fiscal 2023. Non-GAAP gross margin is forecast to be around 82%.

For fiscal 2023, F5 Networks expects low-to-mid-single digit revenue growth.

The company anticipates non-GAAP earnings to grow in 7-11% band. Non-GAAP operating margin is forecasted to be roughly 30%.

Zacks Rank & Stocks to Consider

F5 Networks currently has a Zacks Rank #3 (Hold). Shares of FFIV have declined 33% in the past year.

Some better-ranked stocks from the broader Computer and Technology sector are Meta Platforms META, Salesforce CRM and ServiceNow NOW, each flaunting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Meta Platforms' first-quarter 2023 earnings has been revised a penny upward to $1.97 per share over the past seven days. For fiscal 2023, earnings estimates have moved north by a penny to $10.23 in the past seven days.

META’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing twice, the average surprise being 8.6%. Shares of the company have gained 14.5% in the past year.

The Zacks Consensus Estimate for Salesforce’s first-quarter fiscal 2024 earnings has been revised northward from $1.30 to $1.61 per share over the past 60 days. For fiscal 2024, earnings estimates have moved up by 21.3% to $7.11 in the past 60 days.

CRM's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 15.6%. Shares of the company have increased 6.9% in the past year.

The Zacks Consensus Estimate for ServiceNow’s first-quarter 2023 earnings has been revised southward from $2.04 to $2.02 per share over the past 90 days. For 2023, earnings estimates have moved up by a penny to $9.16 in the past seven days.

NOW's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 6.9%. Shares of the company have declined 3.2% in the past year.

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Business Wire

SEATTLE, May 31, 2023--F5, Inc. (NASDAQ: FFIV) today announced that it will participate in the BofA Global Technology Conference. F5’s fireside chat presentation will be webcast live beginning at 1:40 p.m. ET on Thursday, June 8, 2023. Interested attendees can access the live webcast via the Investor Relations section of f5.com or via this link. An archived version of the webcast will be available on F5’s Investor Relations page.

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